Bradford & Bingley shares tumble after TPG walks away

Bradford & Bingley shares tumbled this morning after US private equity firm Texas Pacific Group walked away from a deal to inject money into the bank, forcing the ailing lender to fall back on investors for an emergency cash injection.

The shares had fallen more than 10pc by late morning trading, leaving them down more than 90pc this year.

TPG decided just before 10pm yesterday evening to abandon its deal to buy 23pc of B&B for £179m after learning that the ratings agency Moody's was about to downgrade the bank for the second time in five weeks.

Under the terms of its contract, TPG was allowed to terminate the deal if B&B's credit rating fell by two notches. Its decision to walk away was revealed by Robert Peston's blog on the BBC website last night.

In an extraordinary turn of events, B&B will now receive a capital injection of about £400m from four large investors - Standard Life, Legal & General, Prudential and Insight, part of HBOS.

In the past few days, it has become clear to B&B and those close to the bank that Moody's was going to downgrade B&B. Moody's had already cut B&B's rating on June 3, citing its rising arrears and uncertain outlook.

As it became clear late yesterday afternoon that the second downgrade was coming, the City regulator, the Financial Services Authority, asked TPG to make its intentions clear.

TPG's investment committee convened an emergency meeting and the decision went right up to the US firm's head, David Bonderman. The firm decided that the investment, at 55p a share, was too expensive.

The FSA put TPG under pressure for a definite answer because it wanted to be able to present a stable solution to the stock market this morning. Sources close to the regulator believe its biggest fear at the moment is a repeat of the Northern Rock crisis, which led to hundreds of customers queuing around the block.

Northern Rock was nationalised in February. The FSA is angry with TPG's decision to walk away.

Close to midnight the bank issued a statement saying: "The Board has been informed by Moody's of its decision to downgrade inter alia the Group's senior unsecured and long-term debt ratings from A3 to Baa1 and to maintain the short-term rating at P2.

B&B's chairman Rod Kent is expected to be forced to resign by B&B's shareholders, who have been furious with the way the bank has handled its search for new capital.

An extraordinary general meeting planned for Monday to vote on the TPG deal and a rights issue to raise £258m will be scrapped. The four new backers will also put their cash in at 55p a share. The bank will rush through the new capital raising as quickly as possible.

Mr Kent said: "Bradford & Bingley continues to be well-funded and the capital raising will reinforce our position as one of the better capitalised banks and one of the leading mortgage and savings banks in the UK."